How Long Until My Car is Repossessed After Filing Bankruptcy?
The repossession laws for bankruptcy involving a car will differ due to the type of bankruptcy and depending on the value of the car. With a Chapter 7 bankruptcy, non-exempt assets, like your car, are taken as a part of the “bankruptcy estate” during the bankruptcy process. These assets are usually sold with the proceeds given out to your creditors by the bankruptcy trustee. Any unsecured debts are then forgiven, and your slate is wiped clean. If, by rare chance, more money resulted in the liquidation than needed by to pay off your debt, you get the excess money and unsold assets back. This may not include your car. Why? If your car was secured by a loan with the dealer, it is a secured asset. If you owned your car, no loan, and your car was not sold, and the bankruptcy discharged, you would have no further obligation. In a Chapter 13 bankruptcy, the assets are not taken. Instead, you would set up a payment plan for your debts and pay against the plan over a period of 3-5 years. The repayment plan is managed by a bankruptcy trustee. Given the way this question was asked, assume that we are dealing with a Chapter 7 bankruptcy.
In general, a bankruptcy does not prevent car repossession. Also, you cannot declare bankruptcy to end your car loan in order to keep your car. When you file for bankruptcy and before it is granted, all debt collection activity has to stop until the court hears your bankruptcy case. This means that as soon as you have declared for bankruptcy, your lender cannot repossess your car and also cannot file to begin collecting on the debt.
This is true for both Chapter 7 and Chapter 13. As we stated before, in both cases, if your car has a loan against it, it is a secured asset. After the bankruptcy proceedings. you will either lose your car or you will have to catch up on the debt and get current on your loan. If you do not pay, you do not keep the car.
Here is a kicker. If you declare Chapter 7 and it is an expensive or luxury car and you have a lot of equity in your car, then it could be seized as an asset, become part of the “bankruptcy estate” that is seized and sold to pay off your debt. How it works is as follows: you bought a $50,000 car on loan and still owe $10,000 on it. The car may be seized and sold. The $10,000 remaining on the loan gets paid off and the difference is used to pay your other debts.
Once the bankruptcy is discharged, the Official Receiver cannot claim any other assets if you applied for a personal bankruptcy. The Official Receiver will typically claim and seize any equity within three weeks at the earliest and twelve weeks (3 months) at the latest. If you are now discharged, you can now safely sleep with any un-seized assets. In a bankruptcy, if a vehicle is of low value, it is common for it to be left for business use or necessary for travelling to work, especially when there is no other means of public transport, where commuting would be a greater problem because of no car.
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